1.1 Introduction to BM Flashcards
Business plan
Business plan refers to the document that sets out the business idea, its goals and objectives and other details of how it will operate (e.g. marketing, operations and finance). Often animportant part when trying to raise external sources of finance.
Businesses ‘What is a business?’
Businesses are organisations involved in the production of goods and/or the provision of services
Consumers
Consumers are the people or organisations who actually use a product
Customers
Customers are the people or organisations that buy a product
Entrepreneurs
Entrepreneurs are owners or operators of an organisation who manage, organise and plan the other three factors of production. They are risk takers who exploit business opportunities in return for profits
Intrapreneurship
Intrapreneurship is the act of behaving as an entrepreneur but as an employee within a large business organisation. Intrapreneurs work in an entrepreneurial capacity, with authority to create innovative profucts or new processes for the organisation
Needs
Needs are the basic necessities that a person must have to survive; food, water, warmth, shelter and clothing
Primary sector
Primary section refers to businesse involved in the cultivation or extraction of natural resources; farming, mining, quarrying, fishing, oil exploration and forestry
Secondary sector
Secondary section is the section of the economy where the business activity is concerned with the construction and manufactoring of products
Tertiary sector
Tertiary sector refers to the section of the economy where business activity is concerned with the provision of services to customers
Quoternary sector
Quoternary sector is a subcategory of the tertiary sector, where businesses are involved in intellectual, knowledge-based activities that generate and share information, e.g. information communications technology and research organisations
Sectoral change
Sectoral change refers to a shift in the relative share of GDP (or national output) and employment that is attributed to each business sector
The role of business in combining human, physical and financial resources to produce goods and services
Management guru Peter Drucker famously said that the
only purpose of a business is to create customers, i.e. the role
of businesses is to combine human, physical and financial
resources to create goods and services in order to satisfy the
needs and wants of people, organizations and governments.
What are the 4 main business functions?
-human resources -finance and accounts -marketing -operations
Human resources
The human resources (HR) department
is responsible for managing the personnel of the organization.
In managing people, the HR department is likely to deal with
the followingissues: workforce planning, recruitment, training,
appraisal,dismissalsand redundancies, and outsourcing human
resource strategies (see Unit 2.1).
Marketing
The marketing department is responsible for
identifying and satisfying the needs and wants of customers.
It is ultimately in charge of ensuring that the firm’s products
sell. This is done through a series of activities such as market
research, test marketing, advertising and branding. Functions of
the marketing department can be summed up as the traditional
four Ps of marketing (see Unit 4.5)
Finance and accounts
The finance and accounts department
is in charge of managing the organization’s money. The finance
and accounts director must ensure that accurate recording
and reporting of financial documentation takes place. This is
to comply with legal requirements (e.g. to prevent deliberate
understating of profits to avoid corporate taxes) and to inform
those interested in the financial position of the business (such
as shareholders and potential investors). Finance and accounts
topics are covered in Units 3.1-3.9.
Operations
Also known as operations management
or production, this functional area of an organization is
responsible for the process of converting raw materials and
components into finished goods, ready for sale and delivery
to customers. Examples of production include the extraction
of crude oil, car manufacturing and the construction of roads.
Operations also applies to the process of providing services to
customers as in the case of hotels, restaurants, beauty salons
and financial institutions. Operations topics are covered in
Units 5.1-5.7.
Reasons for starting up a business
7p
mnemonic GET CASH
- Growth
- Earnings
- Transference and inheritance
Many self-employed entrepreneurs view their
business as something that they can pass on (transference) to
their children (inheritance) to give them a sense of security
that might not be possible if they chose to work for someone else.
- Challenge
Some people might view setting up and running
a business as a challenge. It is this challenge that drives them
to perform and what gives them personal satisfaction.
- Autonomy
Working for someone else means exactly that.
Employees have to follow the instructions and rules set by
the organization that they work for, such as the conditions of
employment, working hours, benefits and holiday entitlement.
Conversely, being self-employed means that there is autonomy
(independence, freedom ofchoice and flexibility) inhow things
are done within the organization.
- Security
Similarly, there is usually more job security for
someone who is their ownboss. Bycontrast, employees can be
dismissed, made redundant, or even replaced by technology.
- Hobbies
Somepeople mightwant to pursuetheir passion or
to turn their hobby into a business. Successful entrepreneurs
have a passion for what they do and this is made easier if the
nature of the work is directly related to their interests.
Steps in the process of starting up
a business AO2
5p
- Write a business plan.
- Obtain start-up capital.
- Obtain business registration.
- Open a business bank account.
- Marketing.
Factors to consider when setting up a business
9p
- Business idea
A feasible business idea is needed.This might be done by identifying and filling a niche (unfilled gap) in a market or by providing products that have a unique sellingpoint. Amazon.com (online book retailing). Dell (custom-made computers) and Dyson (bag-less vacuum cleaners) are examples of successful businesses
based on innovative ideas. It is also possible to enter existing markets although these may be saturated so the chances of success might be lower.
- Finance
Finance is needed to fund business activities, such as manufacturing and marketing of the firm’s products. However, finance is usually the key barrier to setting up a new business. Record keeping of financial accounts (see Unit 3.4) also needs to be done. Many firms will hire accountants to help them do this.
- Human resources
Human resources are needed at all stages of business activity, from the design and development of a product to delivering it to the consumer. Entrepreneurs have to consider the need for hiring, training, retaining and motivating their staff.
- Enterprise
Entrepreneurial skills are required to successfully plan, organize and manage the business. Effective leadership and negotiation skills are required to deal with different stakeholder groups (see Unit 1.4) such as employees, suppliers and the government. Entrepreneurs must also have self-confidence and a
passion for what they do.
- Fixed assets
Fixed assets are needed, such as premises and capital equipment. The location decision (see Unit 5.4) is also a crucial but a problematic one; a popular location improves the chances of attracting customers, but the cost of land and property Is much greater.
- Suppliers
Suppliers are needed to provide the business with its raw materials, finished stock of products and support services. Negotiations over issues such as prices and delivery times also need to be undertaken.
- Customers
Customers need to be attracted because without them the business will fail.This might be done by using market research to create products that are desirable, available at the right prices and sold in the right places.
- Marketing
Marketing is essential, irrespective of how good a business idea might be. Many investors turned down Anita Roddick’s idea of The Body Shop and J.K. Rowling’s Harry Potter books. Marketing is needed to convince lenders and buyers that the product is a winner.
- Legal issues
Legalities (legal issues) also need to be considered, e.g. consumer protection laws, copyright and patent legislation and employment rights. Infringement of legal issues can present huge problems for a business, e.g. if a restaurant breaks food hygiene laws, it might be required to cease all operations.
Problems that a new business may
face AO2
- Lack of finance
All businesses need finance for the purchase of fixed assets, such as premises, buildings, machinery and equipment. However, most owners of new or small businesses do not have the credentials to secure external funding without major difficulties. Even if entrepreneurs are able to borrow money, the funds
may be insufficient or the relativelyhigh interest charges might seriously affect the cash flow position of the firm (see Unit 3.7). Hence, new business owners often have to remortgage their own homes to raise the finance needed, thereby offering the lender more collateral (financial security in case borrowers fail to repay the loan).
- Unestablished customer base A major problem facing new businesses is attracting customers, i.e. building a customer base. The problem is intensified when there are well established rivals that already operate in the market. Customer loyalty is built over a long period of time, which may require marketing know-how and large amounts of money.
- People management problems
New businesses may lack experience in hiring the right staff” with all the
necessary skills. This can lead to poor levels of customer service and the need to retrain staff or to rehire people, all of which can be very expensive. Moreover, new businesses might not know the ideal organizational structure (see Unit 2.2) that best suits their needs.
- Production problems
It can be difficult for new
businesses to accurately forecast levels of demand so they are more likely to either over produce or under produce. Overproduction tends to lead to stockpiling,
wastage and increased costs (see Unit 5.5). By contrast, underproduction leads to dissatisfied customers and a loss of potential sales.
Summary why set up a business
4 ‘tos’ + 3
In summary, people set up their own businesses to satisfy their
personal desires such as:
- to be their own boss
- to fulfil a personal vision
- to have the opportunity to achieve success
- to live a more extravagant lifestyle (if and when the business is
successful) .
However, a significant number of new businesses
fail to survive. There are three interrelated reasons for this:
- a lack of cash in the business
- poor costcontrol
3.management
incompetence.
Contents of a typical business plan
6p
- The business
2 The product
- The market
- The finance
- The personnel
- The marketing
